Feb 20, 2019, by Lorcan Roche Kelly
In January, the FOMC famously signaled a big dovish shift. At 2:00 p.m. Eastern Time today, the minutes of the meeting are released that should shed light on the decision to drop a promise for “some further gradual increases” from the policy outlook. Federal Reserve Bank of Cleveland President Loretta Mester yesterday called for an end to the reduction in the size of the central bank’s balance sheet, saying she would like to see it finish before the year is over, echoing comments from Governor Lael Brainard last week. Analysts are looking at what this might mean for the yield curve, with BMO strategist Jon Hill saying that the gap between the yield on 2- and 10-year notes could resume its narrowing trend.
The latest major news in the trade saga is that the U.S. has asked China to keep its currency stable in a move aimed at discouraging officials in Beijing from devaluing the currency to offset the impact of sanctions. The request may backfire: A more managed yuan would reverse China’s longer-term policy of allowing market forces to set the level of the currency. The yuan strengthened 0.51 percent to 6.7252 against the dollar overnight.
Exit on two fronts
Prime Minister Theresa May is heading back to Brussels today as she tries to eke some concessions from the European Union which would save her withdrawal agreement. May’s spokesman said that the meeting with European Commission President Jean-Claude Juncker today will be “significant” while Junker said he is not expecting any major developments. Back in London, meanwhile, three lawmakers from May’s Conservatives quit the party, further reducing the number of votes she could count on to implement her Brexit policy.
Overnight, the MSCI Asia Pacific Index climbed 0.8 percent while Japan’s Topix index closed 0.4 percent higher, reaching the highest level since Dec. 13 with automakers benefiting from a weaker yen. In Europe, the Stoxx 600 Index had gained 0.2 percent by 5:50 a.m., with banking shares under-performing following comments on long-term funding from the ECB’s chief economist. S&P 500 futures pointed to a relatively flat open, the 10-year Treasury yield was at 2.630 percent and gold was higher.
A barrel of West Texas Intermediate for March delivery held close to $56 this morning as oil remained at a three-month high in spite of all the current global growth concerns. Saudi Arabia’s production cuts continue to keep a floor under the price, but there are plenty of clouds on the horizon as new supply comes on stream and doubts over the health of the world economy persist.